Footsie recoups some losses as rally in banks outweighs fall in mining stocks

FTSE:5,053.71 (+12.10) Mid-250:9,805.76 (–82.50) Small Cap:2,795.79 (–26.33)

LONDON EQUITIES had ret-urned to positive territory by the close yesterday as a nascent recovery in the banking sector offset losses for resource stocks.

Sentiment was suffering from a combination of weaker Chinese economic data, frustration at the inability of euro zone leaders to definitively address the fiscal crisis and growing doubts about the outlook for the US economy after bearish comment from the Federal Reserve.

“If there’s one thing we all should have learnt from recent years, it’s that markets get overly hysterical and feed on their own fear,” said Chris Weston, institutional dealer at IG Markets. “Unfortunately for the market, a lack of political leadership seems to be one of the biggest reasons.

“Euro finance ministers and bodies like the IMF are blatantly behind the curve and very slow to react. And when they do it’s normally with nothing more than jawboning. Similarly in the US, Washington is stuck in political gridlock with both parties posturing ahead of next year’s presidential election.

But by the close, the bank sector helped lift the FTSE 100 by 12 points to 5,053.71. The index fell 5.6 per cent over the week.

Clem Chambers, CEO of financial website ADVFN, said “The FTSE has gone below 5,000 for the third time since the crash of the sovereign debt crisis began. Big round numbers are psychological and this is the mother of psychological financial crisis. It may bounce back but unless the governments of Europe find a solution fast, the FTSE will find itself heading quickly below 4,500, on its way to 4,000 and perhaps beyond”.

London’s riskier financial stocks – which were at the forefront of the sharp declines earlier in the week – remained in demand. The gains were sustained even as talk of bigger than expected write-downs from an internationally agreed swaps deal on Greek debt holdings harried their continental European peers.

Royal Bank of Scotland was the best stock in the sector, up 2.1 per cent at 22½p. Lloyds Banking was 5 per cent higher at 33.3p, while Barclays added 5.1 per cent to 144.03p.

Miners remained broadly lower, however, with Kazakhmys 3.8 per cent weaker at 794.3p. Xstrata lost 2.8 per cent to 810.7p and Antofagasta fell 0.2 per cent to 971p. – (Copyright The Financial Times Limited 2011)